Copper Futures and Options Market

Learn the most effective strategies for buying and selling options on futures contracts. Also learn producer and consumer hedging strategies.

*The information contained within this webpage comes from sources believed to be reliable. No guarantees are being made to the content's accuracy or completeness.

The History of Copper and Copper Futures Trading

The word copper comes from the ancient name of the island Cyprus that was a primary source of copper in the past. Copper has been used by men for more than 10,000 years. Archeologists recovered a portion of a water plumbing system from the Pyramid of Cheops that was in serviceable condition after more than 5,000 years. Copper weapons have also been found dating back many thousands of years.

Copper is a commodity whose prices can directly reflect the current state of the world economy because of its many uses in industrialized countries. It is the world's third most widely used metal, only iron and aluminum are used more, and is primarily used in highly cyclical industries such as electrical uses, infrastructure, construction and industrial machinery manufacturing. A typical house has about 400 pounds of copper in it. Copper is also biostatic which means bacteria will not grow on its surface which is why it is used in air-conditioning systems, food processing surfaces and doorknobs to inhibit the spread of disease.

Here is the option strategy guide for metals courtesy of the CME Group.

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Its softness, color, and presence in nature enabled it to be easily mined and fashioned into primitive utensils, tools, and weapons. Two thousand years later, the West learned to alloy copper with tin, producing bronze and giving rise to a new age, The Bronze Age.

Copper has been called by many future trading fundamental analysts as the only commodity with a PhD. in economics because its rising prices sometimes precede periods of economic growth. This has been attributed to copper’s industrial uses in electrical and plumbing for new homes and other manufacturing uses.

Copper market participants across the board use COMEX Division high-grade copper futures and options to hedge price risk, and the copper future and copper option contracts are used as investment vehicles by large and small copper future and copper option traders. Learn More >>>

During the September 11 terrorist attacks the COMEX was destroyed but within days of the disaster the copper futures and copper options markets were trading again. This stands as a testament to the strength and reliability of the industrial metals future markets and the commodity exchanges.

Are you a copper hedger? If so, click here to learn more.

Copper Options on Futures Contracts Explained

A copper call option gives the purchaser the right but not the obligation to purchase the underlying futures contract for a specific time period and a specific price (strike price). Let's say that you wanted to purchase a March copper $2.50 call option and pay a premium of $1,500.

This means that you bought the right but not the obligation to buy 25,000 pounds of May copper for $2.50 per pound. Of course, very few options are bought for the purpose of taking delivery but that is one potential outcome. Chances are that you either bought the copper option to hedge your price risk in the physical copper market (maybe you own a copper mine or you use large quantities of copper pipe in your plumbing business) or you are speculating that copper prices will go higher in an attempt to make a profit.

A copper put option gives the purchaser the right but not the obligation to sell the underlying futures contract for a specific time period and a specific price. Let's say that you wanted to buy a March copper $2.00 put option and pay a premium of $1,600.

This means that you have the right but not the obligation to sell 25,000 pounds of March copper at $2.00 per pound.

What is the delta factor?

The delta factor of an option represents the estimated percentage of change an option will receive based on the movements in the underlying futures contract.

Let's assume the March copper $2.50 call option above has a 30% delta factor. This means that if the underlying futures contract were to rally by $1,000, then the call option would accrue by approximately $300 or 30% of $1,000 in the copper futures contract.

What is theta?

Options are wasting assets which means that they lose value as time passes. The theta of an option is the measure of time decay.

Let's assume that you bought a May copper $2.50 call option with 60 days left until expiration. Let's also assume that the copper futures prices have moved very little over the last month and are exactly the same price 30 days later. Your option will have lost 30 days worth of time and therefore will be worth less today that it was when it had 60 days left until expiration.

What is vega?

Vega is a measure of the implied volatility of an option contract as it relates to its underlying futures contract. For instance, if the underlying futures contract is extremely volatile then the implied volatility of the options of that futures contract will be affected.

In a high implied volatility environment option premiums tend to expand. Conversely, in a low implied volatility environment the option premiums tend to decrease.

*Contract information changes from time to time. Please click here to see the most recent contract specifications and click here for the most recent trading hours.

High Grade Copper Futures and Copper Options
Contract Specifications

Trading Unit

Copper Future: 25,000 pounds

Copper Options: one COMEX Division high-grade copper futures contract

Trading Hours

Copper Futures and Options: 8:10 A.M. to 1:00 P.M. for the open outcry session. (verify with exchange)

Trading Months

Copper Futures: Trading is conducted for delivery during the current calendar month and the next 23 consecutive calendar months.

Copper Options: Copper options are offered for trading in each of the following contract months: March, May, July, September, and December up to one year to expiration. Serial months are also listed so there are always three consecutive nearby months traded. Twenty-four-month copper options are listed when July and December become the 24^th month. The options are American-style and can be exercised at any time up to expiration.

Price Quotation

Copper Futures and Options: cents per pound

Minimum Price Fluctuation

Copper Futures and Options: Price changes are registered in multiples of five one hundredths of one cent ($0.0005, or $0.05) per pound, equal to $12.50 per contract. A fluctuation of $0.01 is equal to $250 per contract.

Maximum Daily Price Fluctuation

Copper Futures: Initial price limit, based upon the preceding day's settlement price, is $0.20 per pound. Two minutes after the two most active months trade at the limit, trading in all months of futures and options will cease for a 15-minute period. Trading will also cease if either of the two active months is bid at the upper limit or offered at the lower limit for two minutes without trading.

Trading will not cease if the limit is reached during the final 20 minutes of a day's trading. If the limit is reached during the final half-hour of trading, trading will resume no later than 10 minutes before the normal closing time.

When trading resumes after a cessation of trading, the price limits will be expanded by increments of 100%.

Option: No price limit.

Last Trading Day

Copper Futures: Terminates at the close of business of the third last business day of the maturing delivery month.

Copper Options: Expire on the fourth last business day of the month prior to the delivery month of the underlying futures contract.

Exercise of Options

Until 3 P.M., New York time, on any business day for which the option is listed for trading. On expiration day, the buyer has until 4P.M., New York time, to exercise an option.

Option Strike Price Intervals

Options: $0.01 per pound apart for strike prices below $0.40. $0.02 per pound apart for strike prices between $0.40 and $1.20, and $0.05 apart for strike prices above $1.20.

Delivery

Copper may be delivered against the high-grade copper futures contract only from a warehouse in the United States licensed or designated by the Exchange. Delivery must be made upon a domestic basis; import duties or import taxes, if any, must be paid by the seller, and shall be made without any allowance for freight.

Margin Requirements

Margins are required for open copper futures and short options positions. The margin requirement for an options purchaser will never exceed the premium paid.

Trading Symbols

Futures Ticker Symbol: HG

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